Senators to Metro: No more federal funding if you buy Chinese rail cars

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A team attempts to collect signatures during rush hour outside Metro Center on Tuesday, hoping to urge the transit agency not to buy its next generation of subway cars from the Chinese state-owned rail car company CRRC. (Marvin Joseph/The Washington Post)

Congress would approve 10 more years of critical federal funding for Metro, but only if the transit agency agreed to not buy its next generation of rail cars from China, legislation being proposed by the region’s senators stipulates.

The move reflects a growing backlash in Washington against China’s state-owned rail company, whose growing domination of the U.S. market has raised concerns that it could ravage American manufacturers and provide platforms for cyberespionage.

The China Railway Rolling Stock Corp. is pushing back against its critics and has hired lobbyists in Washington. A CRRC spokesman said the United States should encourage rather than stifle free competition and dismissed concerns about subway car spying as “ludicrous.”

CRRC is actively pursuing a Metro contract likely to exceed $1 billion to build up to 800 of its new 8000-series rail cars. The company has won four major U.S. rail car contracts in recent years, with low bids that critics complain are possible because of government subsidies.

If Metro can’t buy from CRRC, the extra cost could be tens or hundreds of millions of dollars, according to industry analysts.

Metro appeared to be relieved at the prospect that Congress might provide it with a legal basis to turn down a bid from CRRC and thus avoid being drawn into a political controversy.

The agency issued a statement saying the proposed Metro legislation — and another Senate bill that would bar or discourage any U.S. transit system from buying from China — offers transit agencies “clear legislative intent.”

No U.S. company makes subway rail cars. Companies other than CRRC that have shown interest in the Metro contract include South Korea’s Hyundai Rotem and France-based Alstom. The deadline for bidders, which has been extended twice, is May 31.

Sens. Mark R. Warner and Tim Kaine of Virginia and Chris Van Hollen and Ben Cardin of Maryland, all Democrats, have been working for months to draft a bill to extend the federal program that gives Metro $150 million a year for capital expenses.

The funding, a crucial part of Metro’s budget for 10 years, ends this year unless it is reauthorized by Congress. Metro receives the subsidy on the condition that the District, Maryland and Virginia each contribute $50 million a year to match it.

The senators have agreed to add a condition to the reauthorization bill that would effectively block Metro from awarding the 8000-series contract to CRRC. Warner said that the bill’s final language is still being tweaked but that the legislation would prohibit deals with firms based in countries such as China, which have laws requiring companies to cooperate with state intelligence or other government agencies.

Metro has been under pressure from Congress, the Pentagon and the U.S. rail industry to guard against the risk that China might plant listening devices or malicious software in rail cars as a way to conduct surveillance or allow sabotage of trains traveling beneath or near the Capitol, Pentagon and White House.

“We need to make sure the nation’s capital is more protected than any,” said Warner, who is vice chairman of the Senate Intelligence Committee.

“With almost all of these next-generation train cars, [the manufacturer] can send a software update remotely, where you as the owner don’t have any ability to screen that update,” Warner said. “The update could add malware.”

He also warned against unfair Chinese trade practices that he said use state resources to unfairly target competitors from free-market countries.

“China is once again taking on industries sector by sector,” Warner said. “It’s providing incredibly generous financing, and then putting price points that are generally 20 percent to 30 percent less than any Western competitor.”

Congress’s concern about Chinese tactics in the transit sector extends nationwide. Last month, a bipartisan group of high-ranking senators filed a bill that would prohibit any U.S. transit system from using federal funds to buy transit cars or buses from Chinese companies.

The bill would also impose one-time financial penalties on agencies that buy from China, even if they use only state and local funding for the purchase. That provision would apply to Metro, which is using state and local funding to buy its 8000-series cars.

“The efforts by Congress to address this matter both locally and nationally would provide all U.S. transit systems receiving federal funding with clear legislative intent. We will follow all applicable laws,” Metro spokesman Dan Stessel said regarding both pieces of legislation.

The pressure from Congress and elsewhere has stirred the previously low-profile CRRC to mount a counteroffensive. It has hired two public strategy firms, Signal Group and Mercury, to lobby and provide consulting services as it battles its opponents.

CRRC has contracts to build rail cars for agencies in Boston, Chicago, Los Angeles and Philadelphia. The company said it imports the shells for its cars from China but assembles them in plants in Chicago and Springfield, Mass., using mostly American-made components. It is building another assembly plant in Los Angeles. At the Chicago plant, at least 60 percent of the components added to the shells are provided by U.S. suppliers, a spokesman said.

The company rejected accusations of cyberespionage, saying that the transit agencies have complete control of the rail cars’ operation.

“The assertion that foreign rail car manufacturers are installing malicious software in passenger rail cars is ludicrous,” said Dave Smolensky, a CRRC spokesman in Chicago. “Once they are delivered to the transit agency, the rail cars are operated by the agency and are never operated or controlled in any manner by the manufacturer.”

CRRC provides replacement parts, he said, but “it has nothing to do with operation.”

As evidence that CRRC is not monopolizing the market, Smolensky pointed to Atlanta’s recent tentative award of a $646 million transit car contract to Stadler, a Swiss company that beat out CRRC for the deal.

“The decision by [the Metropolitan Atlanta Rapid Transit Authority] is the clear result of a competitive market,” Smolensky said. “The contention that one company is winning all the passenger rail car [contracts] is just inaccurate.”

The company’s assurances were received with varying degrees of skepticism from technology experts and CRRC’s opponents in the United States.

James A. Lewis, senior vice president at the Center for Strategic and International Studies, said there was “very little risk” of cyberespionage as long as there was no electronic or other connection between the rail cars and China.

But he added: “It’s not unusual to have big capital goods connect back to the manufacturer. The problem here is that home is in China. . . . China is very aggressive when it comes to espionage, so you can’t say there’s no risk.”

Last week, canvassers with the Rail Security Alliance, one of the company’s most outspoken critics, were at Metro stations collecting signatures on petitions asking Metro not to buy cars from CRRC.

“The company that is hired to build the Metro cars will also have access to Metro tunnels for repairs and maintenance,” said Erik Olson, vice president of the alliance. “Those tunnels run by the Capitol, the Pentagon, and all of the city’s major business and government offices.”

Scott Paul, president of the Alliance for American Manufacturing, which represents the United Steelworkers and steel-related companies, said CRRC’s lowball prices could allow it to achieve a monopoly in transit vehicle production.

“Once CRRC achieves enough market share in the U.S. transit business, all other competitors fall by the wayside,” Paul said. “That’s certainly not good for taxpayers or competition, or for transit providers that are looking for legitimate, fair and broad competition for their contracts.”